It came down to the buzzer, but Illinois enacted legislation to legalize sports betting before time ran out in the 2019 state legislative session.
While that’s nice, the state will impose the third-highest tax rate on sports bets, a big disadvantage for Illinois. Lawmakers clearly did not pay attention to what is working across the country.
Since the Supreme Court opened the door for states to legalize sports betting, 14 states and counting have passed sports betting bills. Their results show states with low tax rates and no giveaways to leagues are winning.
New Jersey, which led the legal charge to allow sports betting, imposes a competitive 8.5% tax on in-person bets and up to 14.25% on mobile betting. New Jersey operations are thriving, taking in over $1 billion in bets in less than a full year. State government revenue projections have been met or beaten.
Meanwhile, Nevada continues to thrive. Despite facing competition from other states for the first time in decades, Nevada set records of $5 billion in total bets placed and $300 million in winnings last year. Even in a “down” month for winnings this January, bets were up 19 percent.
Smart sports betting legislation keeps government, like a good referee, from getting too involved in the game. States that follow this lead will win.
Take Illinois’ neighbor, Iowa, which also recently legalized betting, but with a much lower tax rate of 6.75% on sportsbooks’ revenue. In fact, that is tied for lowest in the country with Nevada.
Sportsbooks are very sensitive to taxes because if they try to pass on costs to customers, it affects the value of their bet. Too high and betting activity goes down, and government revenues along with it.
A Copenhagen Economics study showed this effect in European countries: “Denmark, with a tax rate less than half that of France, has a growth in gambling volumes approximately five times larger.” Denmark and the United Kingdom have lower tax rates on bets, resulting in more activity and revenue.
The states that have struggled on sports betting revenues impose burdensome taxes and licensing fees.
Pennsylvania demonstrated that greedy politicians can lose tax dollars by raising taxes too high.
Pennsylvania’s tax on bets is effectively 36%, along with a $10 million licensing fee. Ouch. Sports betting was delayed in the Keystone State because it took months for an operator to even apply for a license and pay the massive fee. A big percentage of zero is still zero. The state is still awaiting the launch of mobile betting.
Rhode Island expected around $2 million per month in revenues, but in March took in just $775,000. Why? The state’s 51% take of all sports betting revenue is not competitive. High taxes, few bets, less revenue for the state.
Yet Illinois is going ahead with a high-tax strategy. Which is like only running the Bears’ 46 defense in modern football and expecting good results.
Not only are these high-tax states hurting consumers, businesses and their own bottom lines, high taxes incentivize people to bet illegally, keeping sports betting in the shadows. The American Gaming Association estimates there is a $150 billion sports betting black market.
State leaders also must avoid giveaways to leagues, such as fees and data mandates.
Some leagues have pushed for fees that can amount to 20 percent of a sportsbook’s revenue, either in the name of “integrity” or as a royalty for statistical data. They’ve also demanded monopolies over sports statistics through data mandates.
These are both abuses of government authority. One would tax money from one private entity to give to another, the other would upend long-held precedent that sports stats are public information, like news.
So far, every state aside from Tennessee has avoided this trap. In fact, Tennessee will impose the second-highest tax rate in the country, and impose a data mandate on operators. This is an all-time bonehead play.
As more states, including Minnesota and Nebraska, consider sports betting bills, they can learn from bad examples in Illinois and Tennessee. The playbook for success is clear: Keep taxes low and avoid meddling with the market on behalf of sports leagues. State lawmakers just have to execute.
Grover Norquist is president of Americans for Tax Reform.
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